Traders Brace for BLS Jobs Revisions

Obamas support Harris and criticize Trump | U.S. mortgage rates drop to 15-month low

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August 21, 2024 07:37 AM

News/Markets/Policy Updates: Aug. 21, 2024

— Mainstream media clearly favors Harris. Recent studies by the Media Research Center (MRC) have highlighted a significant disparity in media coverage between Vice President Kamala Harris and former President Donald Trump. According to these studies, Harris has received overwhelmingly positive media attention, with 84% of her coverage being positive, while Trump has faced predominantly negative media coverage, with 89% of it being negative.

Harris has received 66% more airtime than Trump, and the media has largely focused on her strengths, such as her speaking abilities and the excitement she generates among voters. The networks have not only highlighted Harris’s campaign successes but have also downplayed controversies and avoided labeling her as progressive or liberal, despite her voting record.

In stark contrast, Donald Trump has received predominantly negative coverage, with 89% of the media commentary being unfavorable. This trend has persisted across the same major networks that have been favorable to Harris.

The negative coverage of Trump has included a focus on controversies and critical evaluations of his actions and statements.

Trump’s running mate, JD Vance, has also faced harsh media scrutiny, with 92% of his coverage being negative.

— Democratic National Convention brought in 20 million viewers across 13 networks on its first night, edging the Republican National Convention’s 18.1 million night one viewers; both of this year’s figures top viewership in 2020.

— Poll finds Harris with a statistically insignificant lead over Trump among likely Virginia voters. A recent poll from Roanoke College shows Vice President Kamala Harris running almost neck and neck with former President Donald Trump among likely voters in Virginia. Harris holds a slight lead with 47% compared to Trump’s 44% in a direct matchup, but this difference falls within the poll’s margin of error of ±4.5 percentage points, indicating a very tight race.

When additional candidates are included, Harris maintains her three-point lead, with 45% of the vote compared to Trump’s 42%. However, both candidates’ support decreases slightly as other contenders enter the mix: 13% of likely voters say they would choose someone else, with 6% favoring Robert F. Kennedy Jr. and 2% supporting Cornel West.

This poll, conducted before the start of the Democratic National Convention, highlights the competitive nature of the race in Virginia, a key battleground state, and suggests that third-party candidates could play a significant role in the outcome.

— Former President Barack Obama’s team is returning to the political spotlight to help Harris in her bid for the White House. Harris has quickly brought in several of Obama’s former advisers, including David Plouffe and Stephanie Cutter, to boost her campaign after President Biden’s exit from the race. The move reflects Harris’ need for experienced staff and her aim to rebuild Obama’s multi-ethnic, multi-generational coalition. However, integrating Obama’s team with Harris’ existing operation could introduce tensions, especially given past friction between the Obama and Biden camps. Harris’s campaign will focus on issues like the economy, housing, and reproductive rights, while navigating the complex dynamics within her team.

— Both Barack and Michelle Obama spoke at Tuesday’s DNC convention in Chicago. Highlights:

• Michelle Obama delivered a powerful speech, emphasizing themes of hope and resilience while sharply criticizing former President Donald Trump. She opened with a declaration that “hope is making a comeback,” reflecting on the emotional challenges many have faced recently, including her own grief over the loss of her mother. Obama emphasized the importance of honoring the sacrifices made by previous generations and urged the audience not to squander those efforts. A significant portion of her speech focused on supporting Vice President Kamala Harris, whom she described as “one of the most qualified people ever to seek the office of the presidency.” Obama highlighted Harris’s dedication to public service and her understanding of the struggles faced by many Americans, contrasting this with Trump’s divisive rhetoric. She warned that Trump would likely attempt to distort Harris’s narrative, drawing from her own experiences with similar attacks during her husband’s presidency.

In a notable moment, Obama took a jab at Trump regarding his comments about “Black jobs,” quipping, “Who’s going to tell him that the job he’s currently seeking might just be one of those ‘Black jobs’?”

Obama called on Americans to take action in support of Harris and the Democratic ticket, urging them to “do something” to ensure a better future. She framed the upcoming election as a pivotal moment for the nation, emphasizing the need to confront and overcome the “ugly, misogynistic, racist lies” that may arise during the campaign.

• Barack Obama focused on themes of hope, unity, and the future of American democracy. He praised President Joe Biden for his leadership and dedication to democracy, describing him as a president who defended democratic values during challenging times.

As he took the stage, he was met with chants of his own campaign slogan, “Yes we can,” later echoed by his own words in support of the vice-president: “Yes she can.”

Obama criticized former President Donald Trump, portraying him as self-centered and divisive. He warned of the dangers of a second Trump term, suggesting it would threaten American democracy and increase polarization. Obama said America was “ready for a new chapter” with Kamala Harris as president. He also criticized Trump’s use of “childish nicknames and crazy conspiracy theories” and his “weird obsession with crowd size.”

The heart of Obama’s speech was his endorsement of Harris as the Democratic presidential nominee. He highlighted her career achievements and contrasted her public service record with Trump’s background.

Obama emphasized a message of unity and hope, encouraging Democrats to focus on a positive vision for the future. He drew parallels between his own political journey and Harris’, expressing optimism for her candidacy.

Obama used humor and pointed critiques to engage the audience, while also reflecting on his own political legacy and the importance of progressive patriotism.

— The DNC convention speaker lineup today includes Harris’ running mate Tim Walz, former President Bill Clinton and former House Speaker Nancy Pelosi (D-Calif.).

— Donald Trump cast himself as a purveyor of “common sense” during a trip to Michigan as he looked to counter a central theme of the DNC: that he and JD Vance are “weird” extremists.

— Democrats boosted by Harris’ nomination, aim to flip key House seats in New York and California, as GOP raises alarms. Democrats, energized by Kamala Harris’s nomination and replacing Biden on the ticket, are optimistic about flipping key House seats in New York and California to secure a majority. This shift in confidence comes after concerns that Biden might drag down the party’s chances. The Democratic campaign arm plans to invest heavily in these races, with leaders like Hakeem Jeffries (D-N.Y.) and Nancy Pelosi (D-Calif.) expressing confidence in their ability to win crucial districts. Meanwhile, Republicans are raising alarms about the potential for Democrats to overtake them in the upcoming elections.

We checked in for the opinion of David Wasserman, Senior Editor & Elections Analyst of the Cook Political Report with Amy Walter. His response: “I say 55% chance of GOP hold… average scenario is minimal net change.”

— North Carolina moves from Leans Republican to Toss-up in Sabato’s Crystal Ball’s Electoral College ratings, further emphasizing a focus on 7 key swing states to the exclusion of almost everywhere else. The election watcher says Kamala Harris is polling slightly better in North Carolina than Georgia, “but there are reasons to think she’ll still perform a little better in the latter.” Polling generally suggests a similar ordering of the states to 2020, although Republicans are polling better than one might expect in Nevada and Democrats better in Wisconsin, two states where presidential polling errors have not been uncommon recently, according to the election prognosticator. Link for details.

— Vice President Harris has “greatly improved” the party’s position, said David Plouffe, a senior adviser to her campaign who also served as Obama’s campaign manager in 2008. “A month ago, I think it would have been hard for Democrats to compete in Nevada, Arizona, Georgia or North Carolina to win,” Plouffe said at an Axios House event in Chicago. “I think those are all back as credible states Kamala Harris could win.”

— Report: RFK Jr. considering dropping out to ‘join forces’ with Trump. Independent presidential candidate Robert F. Kennedy Jr. is considering dropping out of the 2024 race to “join forces” with former President Donald Trump, his running mate revealed Tuesday. “There’s two options that we’re looking at, and one is staying in, forming that new party, but we run the risk of a Kamala Harris and [Tim] Waltz presidency because we draw votes from Trump,” Nicole Shanahan, the independent candidate’s vice-presidential pick, said during an appearance on the Impact Theory with Tom Bilyeu podcast. “We walk away right now and join forces with Donald Trump … and we explain to our base why we’re making this decision,” Shanahan said.

Kennedy’s campaign had $3.9 million in cash at the end of July and $3.5 million in debt after spending $7 million last month, Politico reported, noting half of the $5.6 million the campaign raised in July came from Shanahan.

Kennedy is polling at 4.9% in national polls according to FiveThirtyEight’s weighted average, down 0.6 points since the start of the month. Both major parties fear Kennedy could draw votes from them and act as a spoiler, but since Biden dropped out of the race, Kennedy is now believed to be a boon for Vice President Kamala Harris, according to the Washington Post, which noted there is increasing evidence Kennedy is now more likely to pull votes from Trump than the vice president.

— The Harris campaign said it has raised $500 million since the vice president got in the race, per Reuters (link).

MARKET FOCUS

— Equities today: Asian and European stock indexes were mostly lower overnight. In Asia, Japan -0.3%. Hong Kong -0.7%. China -0.4%. India +0.1%. In Europe, at midday, London +0.2%. Paris +0.5%. Frankfurt +0.5%.U.S. stock indexes are pointed to slightly higher openings. The big news today in the U.S. centers on significant revisions to jobs figures for the year through March, with potential implications for both economic perception and policy (see related item below). Economists from Goldman Sachs and Wells Fargo anticipate that preliminary benchmark revisions could reveal that payroll growth was significantly weaker than currently estimated, potentially by 600,000 to 1 million jobs. This equates to a monthly shortfall of around 50,000 jobs. Such a substantial revision could impact the narrative around the labor market’s strength and influence Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Economic Symposium. Powell’s tone and policy signals may be shaped by this new data, which could suggest a less robust labor market than previously thought, potentially affecting future monetary policy decisions. Meanwhile, The Federal Reserve releases its July meeting minutes at 2 p.m. ET.

U.S. equities yesterday: All three major indices finished lower Tuesday. The Dow was down 61.56 points, 0.15%, at 40,834.97. The Nasdaq lost 59.83 points, 0.33%, at 17,816.04. The S&P 500 declined 11.13 points, 0.20%, at 5,597.12.

— Target’s latest earnings report delivered positive news for its shareholders, leading to a surge in the company’s stock, which was up 11% in premarket trading. For the fiscal second quarter ending August 3, Target reported a 2.7% year-over-year increase in revenue, reaching $25.5 billion, surpassing analysts’ expectations of $25.2 billion. Additionally, same-store sales grew by 2%, outperforming forecasts of a 1.1% increase and breaking a year-long trend of declining sales. This strong performance prompted Target to raise its earnings guidance, signaling optimism that the prolonged slowdown in discretionary spending might be easing. The better-than-expected results suggest that consumer spending at Target is picking up, which could be a positive indicator for the broader retail sector.

— Walmart raised about $3.6 billion selling its entire stake in JD.com, as it winds down an eight-year partnership that began in 2016 when Walmart initially acquired a 5% stake in JD.com. The partnership was initially formed to enhance Walmart’s online presence in China, particularly in the grocery sector through JD.com’s platform. The sale of Walmart’s shares in JD.com was conducted at a price range of $24.85 to $25.85 per share, which represents a discount of up to 11.8% from JD.com’s closing price before the sale. The transaction was managed by Morgan Stanley. This decision comes amidst a challenging environment for Chinese tech companies due to market volatility and economic uncertainties in China. Walmart’s decision to divest from JD.com is part of a broader strategy to focus on its own operations in China, including its Sam’s Club and hypermarkets, which have established a strong e-commerce and delivery system in the region. This shift in focus suggests that Walmart aims to concentrate on its core business areas and allocate resources to other priorities within China.

— In the first half of August 2024, U.S. money market funds experienced significant net inflows, with nearly $90 billion being invested. This surge in investment is largely attributed to institutional investors seeking to capitalize on attractive yields that are anticipated to persist even if the Federal Reserve decides to cut interest rates soon. Money market funds are popular among investors because they offer a relatively safe and liquid investment option, typically providing higher yields than traditional savings accounts. The inflow of $88.2 billion from Aug. 1 to Aug. 15 marks the highest for the first half of any month since November of the previous year.

— Ag markets today: Corn and soybeans rebounded from yesterday’s weakness most of the overnight session while wheat futures pivoted near unchanged. As of 7:30 a.m. ET, corn futures were 1 to 2 cents higher, soybeans were a nickel to 7 cents higher and wheat was a penny lower to 4 cents higher. Crude oil futures were trading near unchanged while the dollar index was over 100 points higher.

Wholesale beef prices continue to falter. Choice cutout fell another 47 cents to $315.08 while Select sunk 97 cents to $301.04. Given the steep drop in futures, the cash market held up fairly well Tuesday. Attention is on Friday’s Cattle on Feed Report, which will likely push cash cattle trade late into the week.

Hog index resumes lower. After modest strength last week, the CME lean hog index has turned lower and is down another 24 cents to $89.71 as of August 19. October futures remain well below the cash index, which could spark some corrective buying, especially if the wholesale pork market continues to stabilize. Pork cutout was up 45 cents to $97.54 Tuesday.

— Agriculture markets yesterday:

• Corn: December corn fell 2 1/4 cents to $3.98, ending near the session low.
• Soy complex: November soybeans were unchanged at $9.76, while December soymeal fell $2.20 to $308.30. Both closed near the session low. September soyoil rose 24 points to 40.71 cents, marking the highest close since Aug. 12.
• Wheat: December SRW wheat rose 4 1/4 cents to $5.56 1/2. December HRW wheat gained 4 3/4 cents to $5.61 1/4. Prices closed nearer their session highs. December spring wheat futures rose 3 cents to $6.06 1/2.
• Cotton: December cotton closed up 66 points at 69.34 cents today and nearer the daily high. Prices closed at a two-week high close.
• Cattle: The bears rampaged through the cattle and feeder cattle markets Tuesday, with most-active October live cattle tumbling $3.425 to $175.60. October feeder futures plunged $4.55 to $231.325. The breakdown also occurred despite generally supportive or slightly bearish cash and wholesale data. For example, cash cattle trading averaged $189.14 last week, whereas today’s futures dive took the August future down to $181.025 at the close. That clearly implies bears expect major cash market losses by contract expiration on Friday, August 30. And yet, what little cash trading that occurred Monday took place at $190.00 in the Iowa-southern Minnesota region. Wholesale beef prices also remain relatively elevated, with choice cutout having dipped $1.89 to $313.69 at midsession Tuesday.
• Hogs: Futures followed the cattle/beef sector lower Tuesday, with nearby October sliding 40 cents to $76.40.

— Quotes of note:

• Regarding BLS jobs revisions, Tom Essaye of The Sevens Report says: “This matters because the market is very sensitive to soft labor market data, and we know that from the recent pop in jobless claims and July jobs report. So, while investors are ok ignoring most disappointing data, they aren’t ignoring soft labor market data and if these revisions are worse than expected, look for it to weigh on stocks today. Bottom line, focus is on the Fed right now but ultimately, it’s the data that will determine the next 10% in this market and today’s BLS revisions will remind us that growth is slowing, it’s just a question of by how much.” (See below for details.)

• A shutdown of a swath of Canada’s freight rail network could begin shortly after midnight tonight. Maersk Line withdrew an earlier statement that was restricting cargoes, and says it is continuing to accept shipments. ITS Logistics says some Canada-bound ocean cargo is already diverting to U.S. West Coast ports. ITS executive Paul Brashier says rail shippers may seek truck transport, which could “drive rates through the roof overnight,” if they can find over-the-road capacity. (See related items below.)

• “We make no excuses or apologies for trying to protect our margins.” — Steve Cahillane, CEO of snack-food supplier Kellanova, on Democratic presidential nominee Vice President Kamala Harris’s call for a federal ban on “price gouging.”

— Bob Nardelli, the former CEO of Home Depot, is calling for the U.S. gov’t to be honest about U.S. jobs data. Nardelli has expressed concerns that the jobs report numbers are “woefully overstated” and will be “quietly adjusted” after their initial release. He argues that it’s “about time” the government “got honest” about these figures. This comes in response to warnings from Federal Reserve Governors Michelle Bowman and Lisa Cook, who have also suggested that job gains are overstated and that the labor market might be weaker than it appears.

— Job growth revisions may prompt Fed to reconsider rate situation. New employment estimates due Wednesday at 10 a.m. ET from the Bureau of Labor Statistics (BLS) are expected to show a significant downward revision in job growth, potentially reducing net payroll gains by up to 500,000 for the 12 months ending in March 2024, according to Bloomberg. The estimates for downward revisions encompass a wide range, from JPMorgan’s expectation the BLS will revise down net payroll gains by 360,000 to Goldman Sachs’ estimate of one million. Even at 500,000, this would be the largest revision since 2019 and could reignite concerns about a weakening labor market, especially following a recent rise in unemployment to 4.3%.

The anticipated revisions may influence the Federal Reserve’s decision on the depth of upcoming interest rate cuts, with Fed Chair Jerome Powell likely to address these concerns in his upcoming speech on Friday.

Background: The BLS releases monthly payroll data based on the Current Employment Statistics survey, which covers about one-third of U.S. nonfarm employers. However, more comprehensive payroll data comes from the Quarterly Census of Employment and Wages, which includes information that employers file with their states for unemployment benefits. This extensive data provides a more accurate employment picture but is available on a delay. To adjust for this, the BLS issues a preliminary estimate of benchmark revisions in the fall, with the actual revisions implemented in the January jobs report. These preliminary estimates usually closely align with the final benchmark figures.

— Monthly job numbers are often volatile and subject to significant revisions due to several factors:

• Initial data limitations: The Bureau of Labor Statistics (BLS) bases its initial job estimates on surveys of around 560,000 worksites, which represent millions of businesses across the U.S. These initial estimates are made quickly to provide timely data, but they are based on incomplete information. As more comprehensive data becomes available, the BLS revises these estimates to reflect a more accurate picture of employment changes. The release is scheduled for 10 a.m. Eastern.
• Economic volatility: Economic conditions can fluctuate significantly, impacting job numbers. During periods of economic instability, such as the Covid-19 pandemic, traditional patterns of employment can be disrupted, leading to larger revisions as more data is collected and analyzed. Volatility in the economy can lead to larger discrepancies between initial and revised job numbers.
• Seasonal adjustments: Employment data is seasonally adjusted to account for predictable fluctuations in employment, such as increased hiring during the holiday season. However, if actual employment patterns deviate from historical norms, these adjustments can introduce additional volatility into the reported numbers, according to PolitiFact (link).
• Data collection challenges: The BLS uses both household and establishment surveys to gather employment data. These surveys can be affected by non-responses or misreporting, which are corrected in later revisions. Additionally, annual benchmark revisions use more accurate data from unemployment insurance tax records, which can lead to significant changes in job numbers.
• Macroeconomic forecasting challenges: Forecasting employment trends is inherently difficult, especially during periods of macroeconomic uncertainty. The relationships between various economic indicators can change, leading to forecast errors and subsequent revisions when actual data becomes available.

Bottom line: While monthly job numbers provide important insights into the labor market, they should be interpreted with caution, considering the potential for revisions and the broader economic context.

— U.S. mortgage rates have dropped to a 15-month low, with the average rate on 30-year benchmark mortgages falling to 6.50% for the week ending August 16, according to the Mortgage Bankers Association. This decline marks the lowest rate since May 2023 and is attributed to lower long-term Treasury yields as markets anticipate multiple rate cuts from the Federal Reserve this year. Despite the decrease in rates, mortgage application volumes did not sustain their previous momentum, dropping by 10% compared to the prior week. This suggests that while lower rates may provide some relief to potential homebuyers, it has not yet translated into increased mortgage activity.

— A recent analysis by economists at the Federal Reserve Bank of Atlanta (link) provides insights into how quickly new immigrants integrate into the U.S. labor market. Initially, upon arrival, immigrants tend to participate in the workforce at lower rates compared to native-born workers. They also work fewer hours and weeks per year. However, this gap narrows over time. By the fifth year of their residence in the U.S., immigrants’ labor force participation, employment rates, and the number of hours and weeks worked per year align closely with those of native-born workers.

This trend highlights the gradual integration of immigrants into the labor market, suggesting that initial disparities in employment metrics are temporary. The analysis used data from the U.S. Census Bureau’s American Community Survey, focusing on immigrants aged 16 to 65 between 2010 and 2022. The study found that these patterns hold true across various demographics, including prime-age and older workers, and are consistent regardless of whether immigrants work in agriculture, a sector known for seasonal employment.

The findings imply that the recent increase in immigration flows, particularly since the pandemic, could have a long-term positive impact on the labor market as immigrants gradually increase their labor supply. This gradual integration helps counterbalance the effects of an aging native-born workforce and declining birth rates, which are critical for meeting labor demands.

Additionally, research indicates that immigration does not displace U.S.-born workers or reduce their wages. Instead, immigrants often complement the existing workforce, enhancing productivity and contributing to economic growth.

Market perspectives:

— Outside markets: The U.S. dollar index was slightly higher. Nymex crude oil prices are near steady and are trading around $73.25 a barrel. The benchmark 10-year U.S. Treasury note is presently fetching 3.805%. Gold prices are hovering near this week’s record high.

— The U.S. dollar reached its lowest level since January as investors anticipate the Federal Reserve will begin cutting interest rates. The dollar has dropped 2.2% against a basket of currencies this month, driven by expectations of rate cuts following stronger economic data and fading recession fears. The S&P 500 has also recovered most of its August losses, boosting investor confidence in “risky” assets. Analysts expect the Fed to cut rates multiple times by the end of the year, contributing to the dollar’s decline. Investors are now focused on Fed Chair Jay Powell’s Friday speech at the Jackson Hole symposium for further guidance on U.S. interest rates.

— For the first time in history, the value of a single gold bar has surpassed one million dollars (last Friday, Aug. 16). This milestone was achieved when the spot price of gold exceeded $2,500 per troy ounce, marking an all-time high at the time. Gold bars typically weigh around 400 troy ounces, which, at this record price, translates to a value exceeding $1 million per bar.

Several factors have contributed to this surge in gold prices. Central banks, particularly led by China, have been purchasing gold to reduce reliance on the US dollar, with net purchases reaching 483.3 tons in the first half of the year alone. This is equivalent to nearly 40,000 gold bars, according to Bloomberg’s calculations. Additionally, expectations of a more relaxed monetary policy from the U.S. Federal Reserve have increased gold’s appeal as a safe-haven asset, especially during periods of economic uncertainty.

Of note: While the standard weight for gold bars in the London market is around 400 troy ounces, they can contain between 350 to 430 ounces of pure gold. Smaller and more affordable gold bars are also available for individual investors.

— The recent slump in lumber prices has led to significant challenges for the lumber industry, resulting in the closure of sawmills. Interfor Corporation, a major player in the lumber market, is one of the companies affected by these depressed prices. The company announced that it would indefinitely curtail operations at its sawmills in Meldrim, Georgia, and Summerville, South Carolina. The decline in lumber prices is largely attributed to a decrease in demand, which has been influenced by several factors. The U.S. housing market has seen a significant drop in affordability due to high home prices and elevated mortgage rates, making it financially challenging for consumers to purchase new homes or undertake renovations. This has resulted in reduced construction projects and a decline in lumber sales. Additionally, the home-renovation sector, which had previously seen growth during the pandemic, is now weakening, further impacting lumber demand.

Despite expectations for increased demand due to housing shortages and potential interest rate cuts, the industry’s response to boost production has led to an oversupply of lumber. This oversupply, coupled with weakened demand, has created a surplus of wood products, putting downward pressure on prices. As a result of these market dynamics, some sawmills, including those operated by Interfor, are being forced to reduce or halt production to balance the supply-demand equation. This is anticipated to help stabilize lumber prices in the short term, with a more significant recovery expected in the coming years as the market adjusts.

— Canadian businesses are sounding the alarm about the potential long-term economic damage if upcoming railway and port strikes proceed, potentially disrupting the country’s crucial trade networks. The strikes, which could begin Thursday, involve Canada’s two major railway companies — Canadian National Railway Co. and Canadian Pacific Kansas City Ltd. — and could halt the movement of essential goods like fertilizer and jam container traffic across the country. The railways have warned that they will lock out more than 9,000 workers represented by the Teamsters union if a deal isn’t reached by Thursday morning. Simultaneously, dock foremen in British Columbia, who are responsible for operations at Canada’s busiest port in Vancouver, are also threatening to strike, pending a union vote.

Businesses are still reeling from last year’s 13-day dockworker strike in Vancouver, which disrupted CAD 10.7 billion ($7.8 billion) in trade and reduced Canada’s GDP by up to CAD 980 million ($713.8 million). The ongoing threat of strikes is further eroding confidence in Canada as a reliable trading partner. The situation is already causing delays and diversions of cargo, with some discretionary shipments being rerouted to U.S. ports like Long Beach and Los Angeles, leading to a loss of market share for Canadian ports.

The potential strikes are raising concerns across various industries. Potash supplier Canpotex Ltd. is particularly worried, noting that Canadian products could lose market share to competitors like Russia if rail and port operations are disrupted. The strikes could effectively paralyze the Port of Vancouver, where about two-thirds of cargo is moved by rail, impacting the flow of goods such as grain, potash, and coal.

— The Canadian trucking industry cannot meet the domestic needs to keep critical supplies and daily goods flowing if a work stoppage happens at the country’s major railroads, according to the leader of the British Columbia Trucking Association. “There is no possibility trucking can fill the gap of any labor disruption on railways,” Dave Earl, president and CEO of the BCTA, said in an email to Trucking Dive. Despite the soft freight market plaguing the U.S. trucking industry, Canada’s trucking industry is “already running near capacity,” Earl said, adding that “road transportation cannot come close to replacing the movement of goods that will be displaced from railways in the event of a dispute.”

Trucking companies in Canada primarily transport smaller quantities of goods to locations not serviced by rail. They rely on railroads for moving bulk items such as coal, grain, and minerals. A disruption in rail services would not only affect the transport of these bulk goods but also impact the movement of larger items like vehicles and shipping containers, which are typically distributed to dealerships and distribution centers via rail.

Bottom line: While some domestic freight may continue to move by truck, the inability to transport larger shipments and restock distribution centers could lead to significant supply chain disruptions. This situation is not expected to result in increased business for the trucking sector; instead, it could create logistical challenges and shortages across various industries in Canada.

— Day 2 Crop Tour results for Nebraska and Indiana. Scouts on day 2 of the Pro Farmer Crop Tour found an average corn yield of 173.25 bu. per acre in Nebraska, up from 167.22 bu. per acre last year and the three-year average of 169.37 bu. per acre. Soybean pod counts in a 3’x3’ square came in at 1,172.48 for Nebraska, up from last year at 1,060.02 and the three-year average of 1,150.06.

In Indiana, samples yielded an average corn yield of 187.54 bu. per acre, up from 180.89 bu. per acre last year and the three-year average of 184.07 bu. per acre. Soybean pod counts in a 3’x3’ square totaled 1,409.02 for Indiana, up from 1,309.96 last year and the three-year average of 1,238.55.

On Day 3 of the Crop Tour, scouts on the western leg will sample fields in western Iowa, while scouts on the eastern leg will sample western Illinois and eastern Iowa.

— USDA daily export sales:
• 132,000 MT soybeans to China during 2024-2025 marketing year
• 121,000 MT soybeans to unknown destinations during 2024-2025 marketing year

— USA Rice has expanded its promotional efforts to Norway, targeting the Scandinavian market with a focus on increasing awareness and sales of U.S. rice. From May through August, USA Rice partnered with a local importer to display eye-catching posters in 10 Bambus sushi stores across Oslo and nearby cities. The posters highlighted the quality and sustainability of U.S. rice and included QR codes linking to the importer’s website. This initiative is part of USA Rice’s broader strategy to tap into the growing popularity of Japanese and Korean cuisine in Norway, which imported over $1 million of U.S. rice last year.

— NWS outlook: There is a Slight Risk of excessive rainfall over parts of the Southwest and Great Basin on Wednesday and expanding into parts of the Central/Southern Rockies on Thursday... ...There is a Slight Risk of severe thunderstorms over parts of the Northern High Plains on Wednesday... ...There are Excessive Heat Warnings and Heat Advisories over parts of the Southern Plains.

CONGRESS

— Schumer eyes filibuster changes, tax hikes, and SALT cap repeal if Democrats win big, acknowledges challenges ahead. Senate Majority Leader Chuck Schumer (D-N.Y.) plans to push for changes to the Senate filibuster to advance “democracy” bills like voting rights if Democrats win big in the upcoming elections, according to comments made to reporters covering the DNC convention in Chicago. The filibuster is the Senate rule that requires 60 votes for most major legislation to pass. Schumer said the idea already has support from 48 senators who caucus with Democrats, and that two holdouts — Sens. Joe Manchin (I-W.V.) and Kyrsten Sinema (I-Ariz.) — are both retiring. Asked if he would suspend the filibuster or eliminate it entirely, Schumer said he would “have to discuss that with my caucus.”

He also aims to raise taxes on the wealthy, undo Trump-era tax cuts, and end the state and local tax (SALT) deduction cap. The top tax rate for individuals, Schumer said, “could go” to 39%, up from 35%, though he pledged that no one making less than $400,000 would see an increase. And he said business taxes could rise to offset some of the cuts they received from Trump. Schumer argued that the reduction of the corporate tax rate to 21% went beyond what even business groups expected, citing the Business Roundtable (BRT). “To deal with our fiscal problems, we want to undo some of the Trump tax cuts, which went to the very wealthy,” Schumer said. “The amazing thing, the BRT, the Business Roundtable, asked to reduce the taxes to 25 percent in those 2017 negotiations.

Meanwhile, Schumer said that he will not allow the Trump-era cap on state and local tax deductions to continue after its scheduled expiration at the end of 2025. Former President Trump and his Republican allies in Congress inserted a provision in the 2017 tax reform bill to cap state and local tax deductions at $10,000. That provision hit residents of expensive blue states such as New York, New Jersey and California with higher state and local taxes especially hard, but it raised a lot of revenue to offset the cost of Trump’s other proposals, such as cutting the corporate tax rate from 28% to 21%.

Schumer’s agenda also includes tackling housing costs, protecting abortion rights, and revisiting immigration reform.

However, his plans face significant challenges, especially in a likely divided Congress. Schumer is optimistic but acknowledges the difficulty of enacting his proposals.

CHINA UPDATE

— NYT: Biden approved secret nuclear strategy targeting China, preparing for possible confrontations with Russia, China, and North Korea. In March, President Biden approved a classified nuclear strategy that shifts U.S. focus towards China’s rapidly expanding nuclear arsenal, preparing for potential simultaneous nuclear confrontations with China, Russia, and North Korea, the New York Times reports (link). This strategic shift reflects concerns over China’s growing nuclear capabilities, expected to rival those of the U.S. and Russia by 2035. The strategy also highlights the emerging partnership between China and Russia, raising the possibility of coordinated nuclear threats. Despite Biden’s long-standing advocacy for nuclear nonproliferation, this new guidance underscores the changing and increasingly volatile global nuclear landscape.

— China initiated an anti-subsidy investigation into dairy imports from the European Union, escalating trade tensions between the two economic giants. The probe, announced by China’s Ministry of Commerce, will scrutinize several dairy products, including fresh and processed cheese, and will review 20 EU subsidy programs, particularly those under the Common Agricultural Policy and specific to Italy and Finland’s dairy sectors. This move is seen as a response to the European Union’s recent decision to expand tariffs on Chinese-made electric vehicles (EVs) and impose tariffs on Tesla Inc. cars produced in China. The investigation follows an earlier anti-dumping probe launched by China into EU pork exports in mid-June, highlighting a broader pattern of retaliatory trade actions between the two sides.

The European Commission has acknowledged the investigation and expressed its intent to defend the interests of the EU dairy industry, ensuring that the probe adheres to World Trade Organization (WTO) rules. While China imports dairy products from several European countries, including the Netherlands and France, its overall dairy purchases have declined in recent years due to increased domestic production and an economic downturn.

TRADE POLICY

— India’s bid to rival China in manufacturing hinges on port infrastructure upgrades. India is striving to become a key alternative to China for global manufacturing, but its ability to achieve this depends on improving its port infrastructure, the New York Times reports (link). While efforts are underway to expand and build new ports, including a major facility at Vadhvan and upgrades to existing docks like Jawaharlal Nehru Port, challenges remain. India’s ports currently handle smaller volumes compared to global standards, and limitations such as shallow waters and congested transport routes hinder efficiency. The success of India’s ambitions will hinge on how quickly and effectively these infrastructure projects are completed to accommodate growing trade demands.

— ERS report: U.S. ag exports to Southeast Asia grow, but market share declines amid strong competition and lack of trade deals. U.S. agricultural exports to Southeast Asia have grown over the past decade, but the U.S. has seen a slight decline in market share due to strong competition from countries like China, Brazil, and Australia, according to a new report (link) from USDA’s Economic Research Service. These competitors benefit from more favorable tariffs and shorter shipping distances, placing U.S. exports at a disadvantage. The U.S. has only one free trade agreement in the region, with Singapore, compared to multiple agreements enjoyed by its rivals. Despite initiatives like the Indo-Pacific Economic Framework, the lack of broad tariff reductions continues to challenge U.S. growth in the region. Strengthening trade relationships and securing tariff reductions are seen as crucial for the U.S. to maintain and expand its market share in Southeast Asia.

ENERGY & CLIMATE CHANGE

— Biden’s oil production surges despite ‘no more drilling’ pledge, faces legal and political complexities, Washington Post reports. Despite President Joe Biden’s campaign pledge of “no more drilling,” U.S. oil production has surged to record levels under his administration, the Washington Post reports (link). The complexity of stopping the oil boom is due to legal obligations, political pressures, and market demands, making it difficult for any president to significantly curb fossil fuel production. While Biden has pushed for renewable energy through policies like the Inflation Reduction Act, he has also had to navigate court challenges and political realities that have kept the oil industry thriving. This balancing act may continue to challenge future administrations, including a potential Harris presidency.

Of note: The Biden administration has now outpaced the Trump administration in approving permits for drilling on public lands, and the United States is producing more oil than any country ever has. Former President Donald Trump says if he was president, production would have been much higher and oil prices a lot lower.

— From 2023 into 2024, energy prices have had a notable impact on U.S. inflation, though the overall effect has been mixed due to various factors.

• First- and second-round effects: High energy prices affect inflation through both direct and indirect channels. The first-round effect is the immediate increase in the cost of living as energy prices rise, which is particularly burdensome for low-income households that spend a larger share of their income on energy. Low-income households spend a larger portion of their income on energy costs compared to higher-income households. On average, they spend about 17.8% of their income on energy bills and transportation fuel, which is more than three times the national average. This high energy burden forces these households to make difficult choices between paying for energy and other necessities like food and medicine

The second-round effect occurs when higher energy costs lead to increased production costs for goods and services, which businesses then pass on to consumers, further fueling inflation

• Decrease in energy inflation: Energy inflation in the U.S. has decreased significantly. For example, energy inflation dropped from 41.6% in June 2022 to -2.0% in December 2023. This decline contributed to the overall decrease in headline inflation, which fell from 9.1% in June 2022 to 3.4% in December 2023.

As of July 2024, the U.S. energy Consumer Price Index (CPI) showed a decrease from January 2023, indicating a reduction in energy prices over this period.

• Contribution to lower inflation rates: The decline in energy prices has helped reduce the overall inflation rate. Headline CPI inflation remained above 3% for the first half of 2024 but is expected to decrease to 2.7% by the end of the year.

• Persistent core inflation: Despite the decrease in energy prices, core inflation, which excludes energy and food, remained somewhat elevated. This suggests that while energy prices have a direct impact on headline inflation, other factors are contributing to core inflation.

HEALTH UPDATE

— Eli Lilly’s Type 2 diabetes medication, Mounjaro, continues to make waves in the market, with a new study showing it reduces the risk of progressing to Type 2 diabetes by 94% in adults with prediabetes who are obese or overweight. This adds to the growing positive news about the drug, which is also marketed as Zepbound for weight loss.

Separately, researchers found a disproportionately high number of suicidal thoughts among patients taking Novo Nordisk’s Ozempic, based on an analysis of a global database in the medical journal JAMA Network Open. The Food and Drug Administration and the European Medicines Agency separately found no evidence of such links.

OTHER ITEMS OF NOTE

— ASA criticizes EPA’s final ESA herbicide strategy for complexity, cost, and stringent requirements, urges collaboration for practical solutions. The American Soybean Association (ASA) has expressed disappointment and concern over the EPA’s final Endangered Species Act (ESA) Herbicide Strategy. While acknowledging some improvements, ASA President Josh Gackle criticized the strategy for its complexity, potential costs, and stringent requirements, which he fears may not be practical for farmers. The ASA also believes the EPA’s method of evaluating pesticide risks is overly conservative and could impose unnecessary restrictions. The organization plans to closely monitor the strategy’s implementation and hopes to collaborate with the EPA to make it more workable for agriculture.

— Court overturns STB rule for faster resolution of rate disputes. A federal appeals court vacated the Surface Transportation Board’s (STB) Final Offer Rate Review (FORR) rule, which aimed to expedite rate dispute resolutions between shippers and railroads. The rule allowed the STB to choose between final offers from both parties without a lengthy independent analysis. The decision is a setback for shippers who saw the rule as a cost-effective solution, but railroads argued it lacked congressional authorization and conflicted with legal requirements for a full hearing. The ruling (link) highlights ongoing tensions between shippers and railroads over regulatory methods for handling rate disputes.

Impact: The agricultural sector, which depends heavily on rail for transporting commodities like grain and livestock feed, may face increased costs and logistical challenges due to the court’s ruling that vacated the STB’s expedited rate dispute resolution rule. Without the streamlined process, shippers might have to resort to more traditional, costly dispute resolution methods, potentially raising transportation costs and reducing market competitiveness. This could particularly impact the movement of key agricultural products, such as wheat, by rail.

KEY LINKS